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An increase in government spending of $200 million financed by a new tax of $200 million...

An increase in government spending of $200 million financed by a new tax of $200 million in an economy with a marginal propensity to consume of .90 could result in an increase in nominal GDP (assuming a closed economy with no taxes or leakages) of up to how much? (a) $0; (b) $2,000 million; (c) $180 million; (d) $200 million.

2.   One important consequence of widened income and wealth disparities is a: (a) higher rate of inflation than would exist if incomes were more equal; (b) a savings glut due to the lower marginal propensity to consume of the relatively wealthy compared to the less affluent; (c) a diminished aggregate demand for public services and income redistribution policies among the less affluent; (d) greater flows of capital into the real economy and less into the financial sector than when the labor share of capital is larger.

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Answer #1

1. Ans - d) $200 million

Explanation:

When taxes and govt spending both increases by sam eamount so GDp can maximum increase by that same amount.

2. Ans - b)  a savings glut due to the lower marginal propensity to consume of the relatively wealthy compared to the less affluent

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